California – Labor & Employment Bloghttps://www.steptoelaboremploymentblog.com
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3232Ninth Circuit Decertifies Class of 160,000 Alleging Misclassification as Independent Contractorshttps://www.steptoelaboremploymentblog.com/2018/09/ninth-circuit-decertifies-class-160000-alleging-misclassification-independent-contractors/
Wed, 26 Sep 2018 00:50:35 +0000https://www.steptoelaboremploymentblog.com/?p=2199Continue Reading]]>On September 25, 2018, the Ninth Circuit granted Uber’s motion to compel arbitration and decertified a class of 160,000 drivers alleging violations of California state law, including misclassification of the drivers as independent contractors. The decision does not come as a great surprise given the court’s 2016 ruling compelling arbitration in a related case, but it serves as a reminder to companies everywhere to re-examine their independent contractor agreements.

In O’Connor v. Uber Technologies, the Ninth Circuit rejected the putative class representatives’ additional arguments for why the court could not enforce their arbitration agreements. The court disagreed that the lead plaintiffs could constructively opt out of the arbitration agreements on behalf of the entire class. The court further rejected their arguments that the agreements violated the National Labor Relations Act, following the United States Supreme Court’s decision in Epic Systems. The court then reversed the district court’s class certification orders because the class definitions included drivers who had waived their right to participate in a class action. The decision signals another huge win for the app-based company, which, along with other gig-economy employers, is facing litigation across the country over the legal status of their drivers.

Key Takeaway: The decision serves as an important reminder for companies who use independent contractors. Companies must carefully examine their independent contractor agreements to determine whether they should include arbitration agreements with class action waivers. In addition, companies must carefully re-evaluate such waivers on a state-by-state basis in light of existing developments in the law and the Epic Systems decision. Companies should also consult with counsel experienced in handling arbitration proceedings so as to include provisions that promote speedy and cost-effective case resolutions.

]]>California Narrows Definition of Independent Contractor; Upends 30-Year Old Testhttps://www.steptoelaboremploymentblog.com/2018/05/california-narrows-definition-independent-contractor-upends-30-year-old-test/
Tue, 01 May 2018 05:11:58 +0000https://www.steptoelaboremploymentblog.com/?p=2165Continue Reading]]>On April 30, 2018, the California Supreme Court substantially narrowed the class of individuals who qualify as independent contractors under California wage-hour law and paved the way for a new wave of class actions. In Dynamex Operations West, Inc., the Court adopted the restrictive “ABC test” used in other jurisdictions for determining when a worker qualifies as an independent contractor under California’s Industrial Wage Orders.

Under that test, the court presumes‌ all workers qualify as employees. A hiring entity can prove that the worker qualifies as an independent contractor only if it can show that the worker:

A) is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and

B) performs work that is outside the usual course of the hiring entity’s business; and

C) is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The hiring entity must show all three criteria. Parts (B) and (C) impose particularly narrow constraints for companies seeking to hire independent contractors.

The Court clarified that a hiring entity cannot satisfy part (B) by showing that the worker performs work physically outside of the employer’s place of business, like in some jurisdictions that use the ABC test. The Court wrote: “In light of contemporary work practices, in which many employees telecommute or work from their homes,” the Court would go further and require that the work itself falls outside of the hiring entity’s usual course of business.

The ruling also calls into question numerous existing independent contractor relationships in California, exposing companies to liability and paving the way for new wave of wage-hour class actions by making it easier to establish commonality and predominance. Indeed, the Dynamex Court affirmed the trial court’s decision to certify a class action filed by Dynamex delivery service drivers, and Dynamex’s independent contractor model resembles the business model of many trucking companies and app-based service businesses. At Dynamex, delivery drivers worked on-demand using their own vehicles; set their own schedules; remained free to accept or reject an assigned delivery; and received pay based on a flat fee or a percentage of the delivery fee.

Companies with independent contractors in California need to immediately reevaluate their independent contractor relationships and adjust as necessary to comply in Dynamex. Companies also need to evaluate how to minimize potential past exposure.

]]>Supreme Court Rules Car Dealerships Don’t Have To Pay Overtime To Service Advisorshttps://www.steptoelaboremploymentblog.com/2018/04/supreme-court-rules-car-dealerships-dont-pay-overtime-service-advisors/
Mon, 02 Apr 2018 17:43:22 +0000https://www.steptoelaboremploymentblog.com/?p=2151Continue Reading]]>On Monday, April 2, 2018, the Supreme Court of the United States ruled that car dealerships do not have to pay service advisors overtime under federal law. In a 5-4 decision, the Supreme Court held that service advisors, like auto salespersons, partspersons, and mechanics, are exempt from the Fair Labor Standards Act’s overtime requirements.

The case, which reached the Supreme Court for a second time, involved a lawsuit brought by current and former service advisors from a Mercedes-Benz dealership in Encino, California, who claimed they were entitled to overtime pay under the FLSA. The dealership asserted that the service advisors were not entitled to overtime pay under 29 U.S.C. § 213(b)(10)(A), which exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks, or farm implements.” The District Court agreed and dismissed the lawsuit.

The Court of Appeals for the Ninth Circuit reversed the District Court. It found the statute ambiguous and the legislative history inconclusive and relied on a 2011 Department of Labor rule that interpreted the term “salesman” not to include service advisors. In finding the 2011 rule defective, the Supreme Court vacated the Ninth Circuit’s decision. On remand, the Ninth Circuit again held that the service advisors were not exempt from overtime pay under the law.

Writing for the majority, Justice Clarence Thomas stated that the “ordinary meaning of ‘salesman’ plainly includes service advisors” as they “sell [customers] services for their vehicle.” Thomas further wrote that service advisors are also “primarily engaged in . . . servicing automobiles.” He added that service advisors are “integral to the servicing process” as they “mee[t] customers; liste[n] to their concerns about their cars; sugges[t] repair and maintenance services; sel[l] new accessories or replacement parts; recor[d] service orders; follo[w] up with customers as the services are performed . . . and explai[n] the repair and maintenance work when customers return for their vehicles.” Chief Justice John Roberts and Justices Anthony Kennedy, Samuel Alito, and Neil Gorsuch joined in the majority opinion.

In a dissenting opinion, Ruth Bader Ginsburg wrote that service advisors “neither sell automobiles nor service vehicles” and, therefore, should not be exempt from overtime under the FLSA. Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan joined the dissent.

This is a huge victory for car dealerships across the country that employ more than 100,000 service advisors.

]]>California Supreme Court Rejects Federal OT Formula; Requires More Expensive Calculationhttps://www.steptoelaboremploymentblog.com/2018/03/california-supreme-court-rejects-federal-ot-formula-requires-expensive-calculation/
Wed, 07 Mar 2018 05:22:05 +0000https://www.steptoelaboremploymentblog.com/?p=2140Continue Reading]]>On March 5, 2018, the California Supreme Court changed the test for factoring flat sum bonuses into the overtime rate in Alvarado v. Dart Container Corporation of California, ordering a calculation that will increase the costs of overtime for employers who pay such bonuses. Under the federal formula, an employer must divide an employee’s total weekly pay (including non-discretionary bonuses) by the total number of hours the employee worked in a week to get the regular rate; the employer then must pay time-and-a-half that rate for all overtime hours. But under the Alvarado court’s formula, the employer must divide the total weekly pay by only “the number of nonovertime hours the employee [actually] worked during the pay period.” That smaller divisor will lead to higher overtime rates.

Take an example: An employee who makes $20 an hour worked 45 hours in one week for a total of $900 in straight hourly wages. (Assume the employee worked 8 hours a day Monday through Friday and 5 hours on Saturday, avoiding California’s daily overtime rules.) In the same week, the employer paid the employee a $100 flat sum bonus.

Significantly, the Alvarado court distinguished between (1) the number of “nonovertime hours the employee worked during the pay period” and (2) “the number of nonovertime hours that exist in the pay period, regardless of the number of hours the employee actually worked.” The court held that the employer must divide by the first, smaller number. That distinction makes a significant difference in California, where state law requires time-and-a-half pay for all hours over 8 worked in a day, double time for all hours over 12 worked in a day, and additional premium pay for any hours worked on the seventh consecutive day of work in a week.

Take this example: In one week, an employee worked only Monday and Tuesday, 10 hours each day at $20 an hour, for a total of $400 in straight hourly wages. The employer paid the same $100 flat sum bonus.

Under the federal formula, the employer pays no overtime premium because the employee did not work more than 40 hours in a week. The employer owes a total of $500 in pay.

The Alvarado court “limit[ed its] decision to flat sum bonuses comparable to the attendance bonus at issue here.” The court wrote: “Other types of nonhourly compensation, such as a production or piecework bonus or a commission, may increase in size in rough proportion to the number of hours worked, including overtime hours, and therefore a different analysis may be warranted.” Thus, how this decision impacts other types of bonuses remains to be seen, but we anticipate a flurry of wage-hour class actions seeking to test the limits of the Alvarado decision.

Key Takeaway: Employers with operations in California need to adjust their overtime calculation formulas immediately to appropriately account for flat sum bonuses in those locations. Employers should also evaluate how the decision impacts other types of bonus programs. The Alvarado decision applies retroactively, thus employers need to consider whether they are liable for past pay practices and whether they can take steps to minimize that liability now.

]]>Cal. Court: No Standing to Continue PAGA Claim After Settlementhttps://www.steptoelaboremploymentblog.com/2018/01/cal-court-no-standing-continue-paga-claim-settlement/
Fri, 05 Jan 2018 04:58:51 +0000https://www.steptoelaboremploymentblog.com/?p=2108Continue Reading]]>The California Court of Appeals held late last week that a plaintiff does not have standing to pursue California Private Attorneys General Act (PAGA) claims on behalf of the state or other employees once he accepts an offer to settle his individual claims. The court in Kim v. Reins International California, Inc. B278642 (Dec. 29, 2017), held that once the plaintiff accepted the settlement offer, he no longer qualified as an “aggrieved employee” within the meaning of the statute. The case expands the potential impact of offers of judgment in California wage-hour class actions.

In Kim, the plaintiff sued his former employer in a putative class action for state wage violations and civil penalties under PAGA. The employer successfully compelled arbitration of the plaintiff’s individual claims and the court stayed litigation of the PAGA claims. (California courts hold that PAGA claims are not subject to arbitration; the Ninth Circuit disagrees.)

The employer then served the plaintiff with an offer to compromise under California Code of Civil Procedure Section 998 (the cousin to Federal Rule of Civil Procedure 68). The employee accepted the offer and the plaintiff dismissed his individual state law wage claims with prejudice. The employer then moved for summary judgment on the remaining PAGA claim, arguing the plaintiff lacked standing under the statute because he no longer qualified as an “aggrieved employee.”

In affirming the trial court’s grant of summary judgment, the appellate court wrote: “We hold that where an employee has brought both individual claims and a PAGA claim in a single lawsuit, and then settles and dismisses the individual employment causes of action with prejudice, the employee is no longer an ‘aggrieved employee’ as that term is defined in PAGA.” In so holding, the court defined “aggrieved employee” narrowly as an employee or former employee who “maintain[s] viable Labor Code-based claims against” his/her employer. However, the court also noted that the dismissal affected only the plaintiff’s standing; other employees could file identical PAGA claims.

The court’s ruling increases the potential effectiveness of offers of judgment under either California Code of Civil Procedure Section 998 or Federal Rule of Civil Procedure 68, in that an accepted offer can now effectively wipe out both the state and federal wage claims, as well as the PAGA claims. However, as the California Court of Appeals in Kim noted, even accepted offers of judgment do not prevent other potential class members from bringing identical suits, so the strategy works well in only certain cases.